Puerto Rico Supreme Court Favors Employers On Business Reorganization And Unjustified Dismissal

• Published date: 19 April 2022
• Subject Matter: Employment and HR, Unfair/ Wrongful Dismissal, Employment Litigation/ Tribunals, Employee Rights/ Labour Relations
• Law Firm: Littler Mendelson
• Author: Ms Anabel Rodríguez-Alonso and Irene Viera Matta

In a recent case issued by the Supreme Court of Puerto Rico ("the Court"), the Court addressed the standard and level of proof that must be presented by employers when raising as an affirmative defense a corporate reorganization. In Segarra Rivera vs. International Shipping Agency, 2022 T.S.P.R. 33, 208 D.P.R. ____ (Mar. 23, 2022), the Court ruled that in cases involving unjustified dismissal claims under Act No. 80 of May 30, 1976 (Act 80), the employer is not required to present evidence in a specific way of a bona fide accreditation in order to lawfully prove the existence of a reorganization process or business plan. Accordingly, it should be enough for employers to certify and prove that the business reorganization implemented a valid managerial decision and was not made on a mere whim.

Plaintiff filed suit against his employer for unjustified dismissal, age discrimination and damages, after thirty-six employees were dismissed due to a company reorganization. According to plaintiff, the company was using the reorganization and workforce reduction as a sham to justify the dismissals. The company, in turn, alleged that they had dismissed the employees pursuant to a bona fide reorganization. Specifically, the company had, because of business reasons, changed the type of service they offered to the public. As a result, the company needed to restructure the workforce to align with their updated services and operations. In support, the employer offered evidence to prove the bona fide nature of the reorganization, specifically providing documentation of income decrease due to the loss of their main customers. The company further presented evidence of having lost a major client that accounted for 65%-75% of their business traffic.

The Court, in introducing its discussion of the Act 80 claim, recognized that our legal system does not prohibit employers from dismissing their employees but that it seeks to protect employee rights only against an employer's arbitrary actions. Act 80 specifically provides just cause for dismissals related to total, temporary or partial closure of operations and reorganization changes in the services rendered to the public, as well as downsizing made necessary by a reduction in the volume of production, sales, or profit or for the purpose of increasing competitivity or productivity.¹

The Court further explained that Act 80 acknowledges there are circumstances in the operation and management of a business that may merit dismissing...